Congress Should Withhold Funds from the U.N. Development Program

Congress Should Withhold Funds from the U.N. Development Program

On January 24, the Permanent Subcommittee on Investigations of
the U.S. Senate Committee on Homeland Security and Governmental
Affairs held a hearing on the activities of the United Nations
Development Program (UNDP) in North Korea. A report issued by the
subcommittee confirmed findings by prior inquiries and audits that
deficiencies in UNDP rules, procedures, and management permitted
North Korea to dictate the composition of UNDP staff, access hard
currency, and avoid standard monitoring procedures for projects and
financial transactions. Also, the report expanded on previous
findings by concluding that the North Korean regime used a bank
account that was reserved for U.N. activities to secretly transfer
funds to North Korean bank accounts in the United States and
Europe--and that the regime used UNDP to facilitate payments to a
company that has ties to an entity involved in arms dealing.
Finally, the report found that "by preventing access to its audits
and not submitting to the jurisdiction of the UN Ethics Office,
UNDP impeded reasonable oversight and undermined its whistleblower
protections."[1] These problems are serious and should lead
Congress to reconsider its willingness to fund UNDP activities
absent fundamental improvements in transparency and
accountability.

Money Laundering and Mismanagement

Over the past year, UNDP activities in North Korea have come
under increasing scrutiny. Several inquires and audits have
revealed that UNDP activities in North Korea were conducted in
violation of UNDP rules and procedures. Allegations of UNDP
mismanagement and violations of standard rules and procedures first
arose when Artjon Shkurtaj--the Operations Manager at UNDP in
Pyongyang--blew the proverbial whistle on the deficiencies in
UNDP's operations. His actions led the U.S. Mission to the United
Nations to request access to UNDP audits and other information
related to the organization's operations in North Korea. UNDP
resisted U.S. inquiries, and the dispute eventually was reported in
the press. North Korea refused to cooperate with a request from the
UNDP Executive Board that it comply with an inquiry into the
suspect activities, which ultimately led to the suspension of UNDP
activities in North Korea in March 2007.[2]

A U.N. audit later confirmed the information provided by
Shkurtaj. It also detailed several examples of UNDP mismanagement,
including: the staffing of UNDP's office with North Korean
nationals chosen by the North Korean regime, the "skimming" of the
salary payments to those office workers by the North Korean
government, and the use of convertible currencies (such as the U.S.
dollar and Euro) instead of North Korean currency. All of these
activities were in violation of U.N. and UNDP standard operating
procedures and basic "best practices."[3]

The confirmation of mismanagement did not protect Shkurtaj from
retaliation by UNDP, which refused to renew his employment
contract. The U.N. Ethics Office determined that Shkurtaj had made
a valid case that he had been retaliated against by UNDP.[4] UNDP,
however, decided that the Ethics Office had no jurisdiction and
declined to have the Ethics Office handle the issue.[5]
Shkurtaj's case remains pending before a review panel appointed by
UNDP.

The recent Senate report confirms the allegations made by
Shkurtaj and the conclusions of the U.N. audit. It also makes
several additional and disturbing findings about the relationship
between UNDP and North Korea. For example, over a six-month period
in 2002, North Korea used a UNDP-related bank account to
essentially "launder" $2.72 million out of the country to fund its
interests in the United States and Europe. The North Koreans
themselves admitted that these transfers were made through the UNDP
account in order to avoid international scrutiny. Even on a good
day, it is a difficult task for the U.S. Treasury Department to
track North Korean funding of illicit activities. North Korea's use
of UNDP bank accounts to conduct international financial
transactions makes it even more difficult to "follow the money" out
of North Korea. Moreover, since the North Korean regime used its
UNDP bank accounts as a cover to transfer funds on at least one
occasion, it is reasonable to believe that it has done so on other
occasions.

Most disturbingly, the Senate report reveals that the North
Korean regime used UNDP to conduct financial transactions in
connection with the regime's arms-trading activities. Specifically,
UNDP facilitated the payment of more than $50,000 to a company in
Macau called Zang Lok, which serves as North Korea's financial
agent for sales of ballistic missiles, conventional arms, and
related goods. Again, if North Korea used UNDP in connection with
its arms-dealing activities on one occasion, it is likely that
there are other as yet unknown transactions of the same nature.

Considering these practices, UNDP arguments that UNDP funds were
not diverted by North Korea are not credible.[6] The opaque nature of
North Korean finances and the government's propensity to pool
resources from all sources into common accounts makes it very
likely that UNDP funds were used in an inappropriate manner.

Unfortunately, the potential for mismanagement of UNDP
activities is not unique to North Korea. UNDP operates in many
authoritarian states where there is a great incentive to abuse its
presence for the benefit of repressive regimes.[7] In Burma, for
example, the ruling military junta is pressuring U.N. organizations
operating there to coordinate their activities with the Union
Solidarity Development Association--a political organization
sponsored by the regime.[8] UNDP and other U.N. organizations must not
allow themselves to be used for such purposes, which undermine
their core mission in Burma. It is reasonable to suspect that the
operations of UNDP and other U.N. relief organizations operating
under the world's most repressive regimes--such as those in power
in Zimbabwe, Syria, and elsewhere--are not immune from major
governmental interference.

UNDP has demonstrated a stunning arrogance in resisting efforts
by U.N. member states to exercise proper and prudent oversight of
UNDP activities, projects, and financial transactions. Access to
UNDP audits, records, and documents is critical to proper oversight
and governance. Congress should be concerned that U.S. taxpayer
dollars are going to a program that forbids U.S. government
representatives from making sure that those dollars are properly
spent.

Recommendations

In September 2007, Senator Norm Coleman (R-MN) introduced
legislation that would have withheld all U.S. funds from UNDP
activities unless it submitted to a robust and centralized ethics
program that would include strong protections for whistleblowers.[9]
Unfortunately, the recently passed omnibus appropriations bill
watered down that amendment and substituted a provision to withhold
only 20 percent of U.S. funds appropriated for the UNDP until the
Secretary of State reports to Congress that UNDP was "giving
adequate access to information to the Department of State regarding
UNDP's programs and activities as requested … conducting
oversight of UNDP programs and activities globally; and
implementing a whistleblower protection policy equivalent to that
recommended by the United Nations Secretary General on December 3,
2007."

While these requirements may seem strict at first blush, in fact
they were easily met by UNDP and fall far short of what is
necessary. In order to ensure the proper operation of UNDP in North
Korea and other countries where it operates, the United States
should:

Withhold all U.S. contributions to UNDP until the
organization provides all member states with unfettered access to
all information and audits relating to UNDP projects and other
activities. UNDP currently restricts access to its audit
reports and other critical information about its projects and
activities. Even nations sitting on UNDP's Executive Board cannot
freely access this information. Making matters worse, North Korea
actually holds a position on the Executive Board and uses this
position to impede efforts to access this information. The opaque
nature of UNDP impedes proper governance and oversight of the
organization. It is reasonable to believe that numerous
objectionable activities conducted by UNDP would not have come to
light except for the actions of several brave whistleblowers and
concerned U.S. officials. Increased access, including allowing
member states to have copies of audit reports promptly and allowing
them to make that information public, would address this
problem.

Release all relevant information relating to UNDP activities
in North Korea. During the Senate's investigative hearing,
Senator Tom Coburn (R-OK) revealed that the U.S. Department of
State has additional classified information relating to UNDP
activities in North Korea that would serve to further inform
whether program funds were used by that country to directly support
activities unrelated to development projects.[10] The Department of
State should release--with appropriate redactions to protect
sources or other information that could compromise U.S. national
security--all relevant information on this matter in order to
substantiate or refute such reports.

Investigate UNDP activities in other authoritarian
states. A number of allegations have been madeconcerning
improper activities funded by, or linked to, UNDP staff or projects
in authoritarian states, including Burma, Syria, and Zimbabwe. The
Senate Permanent Subcommittee on Investigations should expand its
investigation to include UNDP activities in those countries.
Similarly, the U.S. Mission to the United Nations should continue
its inquiry into UNDP activities and support the Senate's
investigation by pursuing audits, reports, and other information on
UNDP activities in these countries to see if the organization is
fully complying with its rules and procedures.

Require UNDP to submit to the authority of the U.N. Ethics
Office or to adopt equivalent ethics standards. One of the few
substantive reforms implemented by former Secretary-General Kofi
Annan was to establish an ethics office that had a mandate to
protect whistleblowers from retaliation. After the Ethics Office
found that UNDP retaliated against a whistleblower, the UNDP
rejectedits jurisdiction and authority and initiated its own
inquiry. Secretary-General Ban subsequently bowed to UNDP and
permitted U.N. funds and programs to set up their own ethics
offices. Unfortunately, UNDP announced whistleblower protections
that are substantially weaker than those of the U.N. Ethics
Office.[11] The U.S. should demand that UNDP adopt,
at a minimum, the U.N. Secretariat standards or submit to the
jurisdiction of the U.N. Ethics Office.

Conclusion

The United Nations Development Program has systematically
resisted efforts by its member states to access audits, reports,
and other information on its activities, projects, and financial
transactions. Such access is critical to proper oversight and good
governance. Worse, the organization has rejected standard U.N.
rules and protections for whistleblowers and has retaliated against
staff whosought to inform member states about activities of the
organization that were not in the best interest of UNDP, the
donors, or the people in recipient nations.

Last year, Congress adopted language that would have withheld a
mere 20 percent of UNDP funds until the Secretary of State
certified that the organization had taken steps to address its
opacity, poor management, and insufficient protection of
whistleblowers. Unfortunately, the language was weak, and UNDP
easily met these standards without substantially addressing its
problems. As a result, UNDP can expect full funding in 2008.

This sends precisely the wrong message to UNDP. Congress should
utilize the power of the purse to express its dissatisfaction with
UNDP activities and withhold U.S. funds from the organization until
it meets two conditions: It provides unfettered access to all
internal audits, financial documents, and other relevant
information to member states; and it either adopts strong
whistleblower protections (at least equivalent to those of the U.N.
Ethics Office) or submits to the jurisdiction of that body.

Brett D.
Schaefer is Jay Kingham Fellow in International Regulatory
Affairs, and Steven Groves is Bernard and Barbara Lomas Fellow, in
the Margaret Thatcher Center for Freedom, a division of the Kathryn
and Shelby Cullom Davis Institute for International Studies, at The
Heritage Foundation.